The first step in the formation of a company is the approval of the name by the Registrar of Companies (ROC) in the State/Union Territory in which the company will maintain its Registered office. This approval is provided subject to certain conditions: for instance, there should not be an existing company by the same name. Further, the last words in the name are required to be "Private Ltd." in the case of a private company and "Limited" in the case of a Public Company.
For the purpose of incorporation, certain documents are required to be submitted to the ROC along with the application for incorportion. The most important amongst these documents are the Articles and Memorandum of Association.
The Memorandum of Association is a document that sets out the constitution of the company. It contains, amongst others, the objects and the scope of activity of the company and also defines the relationship of the company with the outside world. A company is required to act within the powers conferred on it by the objects specified in the Memorandum.
The Articles of Association contain the rules and regulations of the company for the management of its internal affairs. While the Memorandum specifies the objects and purposes for which the Company has been formed, the Articles lay down the rules and regulations for achieving those objects and purposes. This document is subordinate to the Memorandum of Association. The preparation of the Articles of Association is essential in the case of private companies, although it is optional for public companies. In case a public company does not register its Articles of Association, the Companies Act contains a model which would then apply to the company.
The ROC will give the certificate of incorporation after the required documents are presented alongwith the requisite registration fee, which is scaled according to the share capital of the company, as stated in its Memorandum. A private company can commence business on receipt of its certificate of incorporation.
A public company has the option of inviting the public for subscription to its share capital. Accordingly, the company has to issue a prospectus, which provides information about the company to potential investors. The Companies Act specifies the information to be contained in the prospectus.
The prospectus has to be filed with the ROC before it can be issued to the public. In case the company decides not to approach the public for the necessary capital and obtains it privately, it can file a "Statement in Lieu of Prospectus" with the ROC. This statement is required to contain information similar to that in a prospectus.
On fulfilment of these requirements, the ROC issues a Certificate of Commencement of Business to the public company. The company can commence business immediately after it receives this certificate.
Centre for Monitoring Indian Economy, Bombay
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Last updated: May 1995.